To The Moon

After the S&P 500 experienced a historic correction, the market is gradually showing signs of stabilization. The sentiment of options traders is shifting, with markets no longer betting on sharp declines, and even before U.S. stocks rebounded strongly last Friday, they had begun to sell off S&P 500 hedges.

Data shows that compared to betting$S&P 500ETF (SPY) $Calls up 10%, put options that protect a 10% drop in SPY over the next three months cost has dropped to its lowest level since 2023. This suggests that the market's fears of a further plunge have waned, although confidence in a rebound has not yet been fully established.

"We're likely to see a period of stability until at least next week," said Alon Rosin, head of institutional equity derivatives at Oppenheimer.

Traders' Market Sentiment

The recent stock market correction has divided traders on the issue of "whether to buy the dip". On the one hand, some investors, affected by the uncertainty of US President Trump's tariff policy, choose to take profits and wait and see for the time being; On the other hand, retail traders remain optimistic, taking advantage of market declines to increase exposure.

In addition, Wall Street's "panic index"-VIX (Chicago Board Options Exchange Volatility Index) also released some bullish signals. The VIX hit nearly 30 points last week, the highest level since August last year, and entered the top 10% of the market's most volatile range. Historical data shows that when the VIX reaches this level, the median return of the S&P 500 for the next month is 2.66%, which is a positive sign for market participants.

Of course, uncertainty remains in the market. For example, the demand to hedge against the decline of the semiconductor sector is still high, and the demand for put options in the VanEck Semiconductor ETF continues to grow, indicating that some traders are still skeptical about the market bottom.

Long options strategies for the current market

The following options strategies can be used to go long on the index given the market stabilizing and potentially rebounding:

1. Bull Call Spread-Low Cost Long Index

   1. STRATEGY: Buy call options with lower strike prices and sell call options with higher strike prices at the same time to reduce costs.

   2. Advantages: Lower cost than buying call options directly, less time value loss, and limited downside risk.

   3. Example: If the current price of SPY is $562, investors can execute the following strategies:

      • Buy Call option with strike price of SPY 565 (expiration time 1-2 months)

      • Sell Call Option at SPY 585 Strike Price

      • If SPY rises to $585, investors can get the most benefit at a lower cost than buying a call option alone.

2. Cash-Secured Put-Sell "insurance" when the market panics

   1. STRATEGY: Sell puts when the market panics to earn premium and buy the index at a lower price if necessary.

   2. Advantages: If the index rebounds, you can directly earn premium; If it continues to fall, you can buy the index at a lower price.

   3. Example: If the current price of SPY is $562, investors can:

      • Sell the Put option at the strike price of SPY 550 and receive a premium of about $5.

      • If the SPY is still higher than $550 when it expires, the investor retains the premium gains; If it falls below $550, buy SPY at a discount.

3. Risk Reversal Strategy (Risk Reversal)-Go long at zero cost

   1. STRATEGY: Sell Put options (Put), use the obtained premium to buy Call options (Call), and achieve zero-cost or low-cost opening positions.

   2. Advantages: Reduce the cost of going long, and possibly even get net income, which is more cost-effective than buying call options alone.

   3. Example: If the current price of SPY is $562, investors can:

      • Sell the Put option at the strike price of SPY 550 and collect about $5 premium.

      • Buy the Call option with the strike price of SPY 575, which costs about $5.

      • If SPY rises above $575, investors enjoy the benefits of the increase, and the cost of building a position is almost zero.

4. Buying a Long Strangle-Taking advantage of market volatility

   1. Strategy Overview: Buy put options with low strike price and call options with high strike price at the same time to profit from violent market fluctuations.

   2. Advantages: You can make profits whether the index rises or falls sharply, and it is suitable for highly volatile markets.

   3. Example: If the current price of SPY is $562, investors can:

      • Buy the Put option at SPY 550 strike price.

      • Buy the Call option at the strike price of SPY 575.

      • Investors can profit if SPY rises sharply above $575 or plummets below $550. The only risk is that the index remains within the range, causing the option to depreciate.

Conclusion

At present, the market is already showing signs of stabilization, while data from the options market shows that investors are unhedging, indicating that the market's fears of further sharp declines have waned. The high VIX index also suggests that the market may perform better in the coming month.

For investors who are bullish on the index, they can use bull spreads, sell puts, risk reversal strategies, or wide straddle strategies to capture market rebound opportunities. These strategies can effectively manage risk while profiting from the volatility of the market.